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2022 (11) TMI 721 - AT - Income TaxAddition u/s 68 - Unexplained cash credits - HELD THAT - The provision of section 68 of the Act fastens the liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the cash credit entries under section 68 of the Act by the Hon ble Calcutta High Court in the case of CIT Vs. Precision finance (p) Ltd 1993 (6) TMI 17 - CALCUTTA HIGH COURT We proceed to understand the identity of the party. The identity of the party refers to the existence of such party which can be proven based on the evidences. As such the identity of a party can be established by furnishing the name, address and PAN detail, bank details, passport and other details of the Government agencies. Genuineness of the transaction - It the duty of the assessee to establish that creditor party has capacity to advance such loan and having requisite fund in its books of account. The capacity to advance loan can be established by the showing sufficient income, capital and reserve or other fund in the hand of creditor. It is required by the AO to find out the financial strength of the creditor to advance loan with judicious approach and in accordance with materials available on record but not in arbitrary and mechanical manner. We proceed to adjudicate the issue in hand. With respect to the identity of the party, we find that the AO in his order has given categorical finding that the assessee has furnished the details such as copy of ledger confirmation along with the copy of PAN except one party namely Smt. Kalpanaben Desai from whom the assessee has taken the loan of Rs. 2,50,000.00 only. The ledger copies contain the name and address of the loan parties. From the above, there remains no doubt that the identity of the loan parties has been established by the assessee beyond doubt. Genuineness of transaction - The undisputed fact that the assessee paid interest on loan after deducting TDS which was not doubted except one party namely Smt. Kalpanaben Desai from whom the assessee has taken the loan of Rs. 2,50,000.00 only. Thus, the Revenue accepted the amount of interest on the loan but doubted the genuineness of the impugned amount of loan. As such the stand of the Revenue is contrary to the facts on record. Thus, we can assume that the impugned transaction was the business transactions between the assessee and the loan parties. Thus we are of the view that the assessee has discharged its onus cast under section 68 of the Act, therefore, we direct the AO to delete the addition made by him except one party namely Smt. Kalpanaben Desai from whom the assessee has taken the loan of Rs. 2,50,000.00 only. Hence, the ground of appeal of the assessee is hereby allowed. Addition u/s 2(24)(x) on account of late payment of PF - HELD THAT - We note that the issue on hand is squarely covered against the assessee by the order of CIT vs. Gujarat State Road Transport Corporation India Limited 2014 (1) TMI 502 - GUJARAT HIGH COURT - However, we also note that the above referred order of the Hon ble Gujarat High Court has been challenged before the Hon ble Supreme Court and outcome of the same is pending. In our considered view, the issue is covered against the assessee at this stage and deserve to be dismissed. Thus the ground of appeal of the assessee is hereby dismissed. Addition on account of commission expense relating to prior period - HELD THAT - We note that the genuineness of the expenses and proximity of such expenses with the business of the assessee has not been doubted by the authorities below. Thus, it can be inferred that the impugned expenses were incurred wholly and exclusively by the assessee for the purpose of its business. But the only drawback is that the same was not claimed in the year to which it pertains. However, we also note that there was no change in the rate of tax under the Act. Thus, there cannot be any loss to the revenue even if the assessee claimed such expenses in the year under consideration - we are of the view that the assessee is entitled to claim the deduction of the impugned expenses. Accordingly, we set aside the order of the Ld. CIT (A) and direct the AO to delete the addition made by him. Disallowance of interest paid on late payment of TDS - HELD THAT - In the present case, we note that the assessee itself conceded before the ld. CIT-A for the disallowance of the impugned expense. Therefore, we dismiss the ground of appeal of the assessee. Unexplained advances from customers and unexplained liabilities - HELD THAT - As considering the minuscule amount involved in the dispute and the fact that the amount was received through banking channel, the same cannot be assumed as unexplained cash credit under section 68 of the Act. It is for the reason that the assessee has furnished the name and address of the party, therefore the identity cannot be doubted without necessary verification which has not been done by the AO in the instant case. Likewise, the transaction was carried out through the banking channel and therefore genuineness of the transaction cannot be doubted in the instant case. Similarly, the amount of advance is of negligible value and therefore the question of creditworthiness of the party does not arise. Thus, in the given facts and circumstances, considering the minuscule amount involved in the dispute, we do not find any reason to disturb the finding of the learned CIT-A. Hence the ground of appeal of the revenue is hereby dismissed. Addition u/s 41(1) - remission and cessation of liability for expenses, admittedly the assessee has not written back the impugned liabilities in the books of accounts - HELD THAT - It is necessary to write back the liabilities in the books of accounts by crediting the profit and loss account. But, in the present case, the assessee has not done so, rather the assessee in the later years has discharged part of the liabilities by making payments which is evident from the submission of the assessee before the learned CIT-A on page 9 of the appellant order. Accordingly, we are of the view that the liabilities shown by the assessee against the expenses cannot be treated as income under the provisions of section 41(1) of the Act. Hence, we decline to interfere in the finding of the learned CIT-A. Thus the ground of appeal of the revenue is hereby dismissed.
Issues Involved:
1. Addition of Rs. 3,44,07,768/- under section 68 of the Income Tax Act. 2. Addition of Rs. 50,040/- for late payment of PF under section 2(24)(x). 3. Addition of Rs. 14,342/- for commission expense relating to the prior period. 4. Addition of Rs. 76,819/- for interest on late payment of TDS. 5. Addition of Rs. 3,00,821/- for unexplained advances from customers. 6. Addition of Rs. 8,46,289/- for unexplained liabilities. Detailed Analysis: 1. Addition of Rs. 3,44,07,768/- under section 68 of the Income Tax Act: The assessee received unsecured loans totaling Rs. 3,44,07,768/- from 18 individuals. The assessee provided ledger copies, confirmations, PAN details, and screenshots from the IT portal as evidence. However, the AO was not satisfied with the evidence and added the amount as unexplained cash credit under section 68, suspecting it to be the assessee's unaccounted money. The CIT(A) directed the AO to verify the details, and some parties responded with the required information. The Tribunal found that the assessee had discharged its onus under section 68 by providing sufficient documentation and that the AO did not conduct further inquiries. The Tribunal directed the AO to delete the addition except for Rs. 2,50,000/- from one party, Smt. Kalpanaben Desai, due to insufficient evidence. Thus, the ground of appeal of the assessee was allowed, and the Revenue's appeal was partly allowed. 2. Addition of Rs. 50,040/- for late payment of PF under section 2(24)(x): The Tribunal noted that the issue was covered against the assessee by the Gujarat High Court's decision in CIT vs. Gujarat State Road Transport Corporation India Limited, which was pending before the Supreme Court. Therefore, the Tribunal dismissed the assessee's appeal on this ground. 3. Addition of Rs. 14,342/- for commission expense relating to the prior period: The AO disallowed the commission expense as it pertained to an earlier year, and the assessee failed to prove it was crystallized during the current year. The CIT(A) upheld the AO's decision. The Tribunal, however, found that the genuineness of the expenses was not doubted, and there was no tax rate change affecting the revenue. Citing the Bombay High Court's decision in CIT v. Nagri Mills Co. Ltd., the Tribunal allowed the assessee's appeal and directed the AO to delete the addition. 4. Addition of Rs. 76,819/- for interest on late payment of TDS: The AO disallowed the interest expense on late payment of TDS, and the CIT(A) confirmed the disallowance as the assessee conceded. The Tribunal dismissed the assessee's appeal on this ground. 5. Addition of Rs. 3,00,821/- for unexplained advances from customers: The AO added the advances as unexplained cash credits under section 68 due to insufficient documentary evidence. The CIT(A) found that the advances were against sales and not loans, thus not falling under section 68. The Tribunal upheld the CIT(A)'s decision, noting that the advances were received through banking channels, and the AO did not verify the parties. The Tribunal dismissed the Revenue's appeal on this ground. 6. Addition of Rs. 8,46,289/- for unexplained liabilities: The AO treated the liabilities as ceased to exist under section 41(1) due to the lack of documentary evidence. The CIT(A) found that the liabilities were not written off in the books and were partly discharged in later years. The Tribunal upheld the CIT(A)'s decision, stating that the liabilities could not be treated as income under section 41(1) as they were not written back. The Tribunal dismissed the Revenue's appeal on this ground. Conclusion: The Tribunal partly allowed the appeals of both the assessee and the Revenue, providing detailed reasoning for each issue based on the evidence and legal precedents. The final order was pronounced on 11/11/2022 at Ahmedabad.
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